TMI Blog2016 (1) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant : Mr Rahul Chaudhary, Senior Standing Counsel with Mr Raghvendra Singh, Junior Standing Counsel For the Respondent : Mr Ved Jain and Mr Pranjal Srivastava, Advocates ORDER Vibhu Bakhru, J 1. The Revenue has filed this appeal under Section 260A of the Income Tax Act, 1961 (hereafter Act ) assailing an order dated 31st March, 2015 passed by the Income Tax Appellate Tribunal (hereafter Tribunal ) in ITA No. 3893/Del/2012 and C.O. No. 352/Del/2012. By the aforesaid order, the Tribunal rejected the appeal and the cross objections preferred by the Revenue and the Assessee respectively against an order dated 30th April, 2012 passed by the Commissioner of Income Tax Appeals [hereafter CIT(A) ], which in turn was preferred by the Assessee against the assessment order dated 28th December, 2010 in respect of the assessment year (AY) 2008-09. 2. In its appeal, the Revenue has projected the following questions of law:- 2.1 Whether in the facts and circumstances of the case, ITAT was justified in law in overlooking explanation 2, 4, 5 to section 9(1)(iv) of the Income Tax Act, 1961? 2.2 Whether in facts and circumstances of the case, the ITAT, was justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed the same under Section 40(a)(i) of the Act. 4.2 The Assessee had also entered into a similar agreement with M/s Intersystems India Pvt. Ltd., Gurgaon in terms of which the Assessee had paid a sum of ₹ 13,78,496/- without deducting any tax at source. This expenditure was disallowed by the AO under Section 40(a)(ia) of the Act. 4.3 Aggrieved by the assessment order, the Assessee preferred an appeal before the CIT(A). In the appellate proceedings the Assessee submitted that it was a Value Added Reseller (VAR) of software related to healthcare and hospitality. The said software was purchased from THPL under the VAR Agreement and the same was resold to various end-users in India. During the financial year relevant to the AY 2008-09, the Assessee had purchased software worth ₹ 66,87,509/- from THPL. In addition, the Assessee had also purchased software from M/s Speed Miners, Malaysia for ₹ 9,35,987/- and M/s Data Innovation Asia Limited, Hong Kong for ₹ 5,03,894/-. The Assessee claimed that similar purchases made in the preceding years had been considered as purchases and allowed as a deduction in computing its taxable income. However, the AO had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. In the aforesaid background, the following question arises for consideration: Whether in the facts and circumstances of the case, the Tribunal was justified in deleting the disallowance of ₹ 72,23,496/- and ₹ 13,78,496/- made by the Assessing Officer under section 40(a)(i) and 40(a)(ia) of the Act. respectively 6. Mr Rahul Chaudhary, Senior Standing Counsel appearing for the Revenue submitted a copy of the VAR Agreement and submitted that the payments made under the said Agreement were not for the purchase of software but were in the nature of royalty. He drew the attention of the Court to clause 4.2 (d) of the Terms and Conditions of the said Agreement which entitled the Assessee to customise the Software for the purposes of End Users . On the strength of the aforesaid Clause, he contended that the Agreement entitled the Assessee to use the software and, therefore, the payments were royalty within the meaning of Explanation 2 to Section 9(1)(vi) of the Act. He next referred to Section 14 of the Indian Copyright Act, 1957 ( CR Act ) and contended that the definition of Copyright would mean an exclusive right to do or authorise any of the acts listed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Products in accordance with a business plan which shall be submitted to Trak within three (3) months of the effective date of the Agreement . Paragraph 4.2 entitles the Assessee to, inter alia, use the software and source codes for a limited purposes to sell and promote the software for use by third parties; demonstrate the software to third parties; and to customise the software for the purposes of End Users. The said agreement further contains a number of covenants to ensure that the Intellectual Property Rights in respect of the software, related material and source codes remains with THPL. A plain reading of the aforesaid agreement indicates that the Assessee has been appointed for the purposes of reselling THPL s software. 11. The CIT(A) found that the Assessee was engaged in the resale of software and the payments made by it to THPL and others were on account of purchases made by the Assessee. The ITAT concurred with the aforesaid finding. It is also not disputed that in the preceding years, the AO had accepted the transactions in question to be that of purchase of software. The limited issue to be addressed is whether in view of these findings the amount paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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